Sunday, May 11, 2008

The Sunday Star-Times has more tax-cut speculation today, this time of $1,000 cash payments to low-income earners in lieu of cuts to the bottom tax rate. It's a good idea, and certainly far better than anything offered by the "tax cuts for the rich" brigade. It targets support at the needy rather than the greedy, and while it doesn't deliver as much to low-income workers as the proposed tax-free bracket Michael Cullen ruled out last week, it delivers more to those at the very bottom, and significantly more to low-income workers than an equivalent-cost cut to the bottom tax rate.

(There are 1.528 million taxpayers with incomes of less than $20,000, so the cost of a $1,000 social dividend to each of them would be $1.528 billion ($1.29 billion if those with zero income are excluded). A 1% change in the bottom tax rate costs $220 million, so this would fund a cut of 7% (or 6%). Such a cut would deliver a maximum of $660 (or $570) to those earning $9,500 or above).

But in addition to delivering more to those in need, this also points the way to how such things should be handled in the future. Rather than cutting taxes (which permanently reduces income and almost always disproportionately benefits the rich) the government should be paying social dividends. While initially these should be aimed at those on low incomes, the ultimate goal should be for equal payments to every taxpayer (or better, every New Zealander), on the basis that we are all equal participants in our society. Beyond that, we should be aiming to build the system towards a universal basic income - a universal payment given to every adult regardless of circumstances. This could not only substantially replace the existing benefit and pension schemes, it would also remove the employers' boot from our neck. It would substantially improve the actual, substantive freedom of people to lead their lives how they wish. And that should be a core goal of any left-wing government.

For those who are interested, Keith Rankin has some old papers on UBI here.